Sending remittances: more options, more protection

Say you'd like to get a few bucks to your college-age son who's
studying abroad, or you need to send money to relatives on another continent.
You have a growing number of options -- ranging from the old-school to the
high-tech -- for doing just that.

And thanks to a new law taking effect in 2013, you'll have more
protections when you send money overseas.

The rule, adopted by the federal
Consumer Financial Protection Bureau (CFPB) in February 2012, means you'll know
the fees you pay, the exchange rate and exactly how much money your friend or relative will
receive before you fork over any cash.

Big business in small amounts
In all, the worldwide
market for remittances -- a formal name for payments from individuals in one
part of the world to those in other parts -- hit $483 billion in 2011, with
almost three-quarters of that being sent to those in developing nations, the
World Bank estimates. By 2014, the total amount sent is expected to surpass
$590 billion.

A report by the CFPB says it's tough to get a handle on exactly
how much money Americans send abroad each year. Official estimates are wildly
divergent, from $12 billion to more than $50 billion annually.

But regardless of the precise amount, remittances are big
business. Transfers average between $200 and $400, and fees can eat up a
healthy chunk of that amount.

To send $200 to China and Thailand averages more than $20 in fees
and foreign exchange costs, while sending the same amount to India and Colombia
costs less than $10, according to the report. Sending $200 to Mexico -- which
is a huge recipient of U.S. funds -- costs almost $14.

The options and locations for sending money are almost endless, so
it's easy to choose the way that best suits you.

You can walk into your local bank or credit union, use a service such
as MoneyGram or Western Union, use a retailer such as Walmart, transfer funds
electronically with PayPal, make the transaction at your computer via myriad options or even use your
mobile phone.

By 2016, the use of mobile devices to make international
remittances is expected to reach $55 billion worldwide, up from less than $12
billion in 2011, the British research firm Juniper Research found.

Keeping it personal
Each way of transferring money has its pros and cons, but for many, but the old way
-- a face-to-face meeting with an agent -- is still preferred.

COST OF A $200 REMITTANCE

Using data from the World Bank Group, the Consumer Financial Protection Bureau analyzed the cost of sending a $200 remittance from the United States to various countries. The costs add up, with fees charged both for the transmission of money and for foreign exchange costs.

Country

Total cost to send ($)

Total cost
(% of $200)

Brazil

$16.68

8.3%

China

$22.37

11.2%

Dominican Republic

$11.93

5.9%

Ghana

$21.61

10.8%

Haiti

$12.10

6.1%

Indonesia

$14.35

7.2%

Jamaica

$14.32

7.2%

Mexico

$13.74

6.9%

Pakistan

$15.77

7.9%

Panama

$15.25

7.6%

Philippines

$12.46

6.2%

Vietnam

$14.44

7.2%

For example, if you want to fund the transfer with cash, rather
than a credit card, debit card or bank account, it's
probably your only choice. But perhaps the most common reason for conducting
the transaction this way is also the simplest: Many people simply like to work
with a human when they're moving money to faraway places, says Saul Wolf,
remittances manager with the World Council of Credit Unions.

"It can be daunting to send money overseas," Wolf says.
"You want a person in front of you, who you can come back to if there's a
problem."

It can also be comforting to know that the person to whom you're
sending the money will have to deal with a real person as well -- to guarantee
that the person who is supposed to get it actually does. Both MoneyGram and
Western Union, giants in the money-transfer business, have taken steps to help
ensure that. For instance, both firms generate a distinct number for each
transaction that the sender passes to the recipient. Also, in many countries,
the recipient has to present photo identification in order to pick up the
money.

The downside? Using an agent isn't as convenient as sending funds
either online or via the phone. You have to physically visit an agent and your
recipients might have to do the same at their locations. That can be
challenging if the recipient lives in a remote part of the world, far from post
offices, airports, financial institutions and other such places where money
transfer firms are typically located. With that in mind, be sure to visit the
money transfer firm's website for a list of agent locations -- and their hours
-- before completing your transaction.

Sending money online or via mobile phoneDon't want to bother with
visiting a brick-and-mortar store or dealing with an agent in person?
MoneyGram, Western Union, certain banks and a growing number of other firms let
you handle money transfers via your computer. The primary advantage:
convenience. You can send money from the comfort of your home whenever you
like.

What you can't do, however, is pay with cash. You'll need to fund
the transaction with a bank account or credit card.

Xoom.com, based in San Francisco, lets you electronically send
money to about 30 countries from your bank account or by credit card. Depending on the country where your recipient
is located, he can pick the money up in cash, have it deposited in his bank
account or have it delivered to his door.

But is it safe to send money online? Mark Beccue, a senior analyst
of mobile payments at ABI Research, says
that the firms offering these services take a number of steps to ensure the
security of the transactions.

Xoom.com, for instance, encrypts all personal information, says
Julian King, senior vice president of marketing and corporate development. Its
computers reside behind a firewall and aren't directly connected to the
Internet. In addition, all employees must pass criminal and financial
background checks before they're hired.In many developing parts of
the world, people are more likely to have access to mobile phones than to banks
or the Internet. With that in mind, a few companies and organizations have
services in place that allow recipients
to receive money via their phones.

Western Union, for example, lets you go to an agent and send money
to the recipient's mobile phone if it has mWallet enabled.

Double-check fees, payment method and delivery dates
Whatever method you select to send your money, be sure to check on
fees, how you need to make the payment and the speed of delivery.

We recognize that people who send money back to loved ones in another
country are engaged in an act of deep devotion ... people deserve
to know where every hard-earned penny is going.

-- Richard Cordray
Consumer Financial Protection Bureau

If you want to use Western Union to send $200 from Florida to
Mexico, you've got seven options. You can send it through an agent, online or
by phone, and it can be picked up as cash or deposited in the recipient's bank
account. The transaction can take from minutes to three days, depending on the
option you choose, and cost anywhere from $8 to $20.

With MoneyGram, sending $200 to Mexico for receipt within minutes
would cost $9.99 sending it in person, and $19.99 making the transaction
online.

New rules in effect in February 2013When the new rule takes effect in February 2013, the exchange rate, fees and amount of money to be delivered to the recipient
must all be disclosed, with a receipt issued reiterating all those points. It
also must say the date the recipient will receive the cash.

"We recognize that people who send money back to loved ones in another
country are engaged in an act of deep devotion," said CFPB Director Richard Cordray in a speech Feb. 15 to the League of United Latin American Citizens. "Many of these consumers
do not make much money themselves and so have very little to spare.
Dividing your resources into two parts and sending some back to your
family elsewhere is a selfless and even a heroic act, and people deserve
to know where every hard-earned penny is going."

The rule applies to all transfers that are more than $15, and are
sent to either an individual or a company.

The sender also has at least 30 minutes to cancel the transfer and
get a full refund.

The CFPB is taking additional comments on the rule until April 9,
and Mary Dunn, deputy general counsel of the Credit Union National Association
(CUNA), says one concern of credit unions is the requirement that they state
when the recipient can retrieve the cash.

Because credit unions contract with third-party vendors, they
"don't know exactly when the money will be available." As she points out,
getting money in a place like Syria, which is currently rocked by civil war,
could be a challenge.

If meeting that kind of guarantee poses a challenge, some small
credit unions may decide to no longer offer remittance services to members, she
says.

Jacqueline Chilton, a payments consultant with Glenbrook Partners
in San Francisco, says that although the rule looks promising on the surface,
it might have unintended impacts on consumers.

Because services that transmit money will have to make investments
to ensure their disclosures are accurate, "the larger players may be better
able to implement" the changes, driving smaller companies out of business.

And because companies and financial institutions must disclose
fees, on the one hand it will make it easier for consumers to comparison shop.
But it also might push prices higher as companies strive to ensure the fees are
high enough to cover their costs as they deal with a
chain of middlemen and fluctuating currency exchange rates, Chilton says.

Published: March 14, 2012

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